The U.S. House Judiciary approved a new bankruptcy bill Wednesday that would enable homeowners to modify their mortgages in bankruptcy court. The bill that has been designed to keep homeowners in their homes has had it’s share of controversy and opposition.
The bill would change the lender friendly and pro creditor stance to amend part of the nation’s bankruptcy code passed in 2005. This legislation, backed by the deep pocketed credit card industry, virtually eliminated the ability of borrowers to wipe out their existing debt through a Chapter 7 bankruptcy filing.
Now consumers who are in dire financial straights are forced to file under Chapter 13 which restructures the debt so that payments are made more manageable while allowing creditors a chance of eventual recovery. However, the courts still have the authority to manipulate the terms of credit card and other unsecured debts to support a “reasonable” payment plan on these debts, but they still cannot force loan modifications on troubled mortgages so banks can foreclose on defaulted borrowers at will.
The bankruptcy bill would apply to loans made to borrowers with shaky credit since 2000, and other nontraditional loans, such as those in which borrowers only make interest payments.
It appears that homeowners, consumer advocates and a majority of democrats support the new bill and lenders, most republicans and the capitalists oppose the bankruptcy bill. No surprises there.
The bill, supported Democrats and consumer advocates , was passed by the House Judiciary Committee 17 to 15, with one Republican, Steve Chabot, R-Ohio supporting it.
“We are in the midst of a crisis _ and one that is deepening,” said Rep. Steve Chabot, R-Ohio, the lone Republican to support the bill, adding that he was “worried about keeping the residents of my district and in the state of Ohio in their own homes.”
Steve Chapman of the Chicago Tribune came out with an article titled, “Democrats may commit the real mortgage fraud”.
Nothing is more fun than doing noble deeds with someone else’s money, and right now Democrats are getting ready for a rollicking good time. Contemplating the subprime mortgage problem, with numerous borrowers unable to pay their debts, the party’s presidential candidates and congressional leaders have a simple solution: Fleece the lenders.
Fleece the lenders?! What?! That is a complete joke.
How is it fleecing lenders, when they should have not made these loans in the first place? How is it fleecing lenders, when the loans that they made to these borrowers are now going bad as a result of their lending pracitices? Where do these journalists come from? Are they on the lenders payroll?!!!
Mr. Chapman continues his ill informed rhetoric;
But lenders who made bad decisions are already paying the price. Many mortgage firms have gone bankrupt. And if these loans are so unconscionable, the question is not why the foreclosure rate is so high but why it’s so low.
According to the Mortgage Bankers Association, less than 5 percent of subprime adjustable-rate mortgages are in the process of foreclosure. The vast majority of borrowers are making their payments, keeping their homes and asking no one for a bailout.
“Why is the foreclosure rate so low and only 5% of subprime loans in foreclosure?”, he says. OK, I am going to give Mr. Chapman a little subprime slime foreclosure training course right here and right now.
- The foreclosure rates are not low, but at all time highs.
- The reason most of these loans have not went bad yet is because up until January 2007, borrowers were refinancing out of these mortgages with no problem. So there were no mortgage issues. Now, they can’t. They are stuck in these predatory loans that were not designed for long term affordability. Since Jan. 07, foreclosures have been rapidly increasing. Adjustable rate mortgages that were made in through 2005 are adjusting, we still have all the loans made in 2005-through the end of 2006 to explode. Just wait.
“We can’t simply leave it to the mortgage companies to fix this problem on their own,” saidHouse Judiciary Committee Chairman John Conyers, D-Mich. “Our legislation, unlike the proposal from the (Bush) administration would actually help working families.”
Mortgage News Daily reported;
There may be a lot to oppose in the Conyers bill. First, as in the rate freeze, there is the issue of fairness. Why January 1, 2005 and not December 31, 2004, etc., etc? There is also what we described last week as a sort of “dog in the manger” attitude among the citizenry; why should anyone else get that kind of help when no one is throwing me a bone? This may be a particularly widespread complaint in this instance as, fairly or not, persons who file for bankruptcy aren’t generally regarded by the public as responsible citizens.
The Wall Street Journal Online in an opinion piece this morning complained that many of the bailout plans view every troubled borrower as a victim. Never let it be said that the Journal will overlook an opportunity to blame a victim and it continued on to do saying that “fraud for housing” in which a borrower falsely presents himself as capable of buying a more expensive property than his finances would justify account for 60% of all mortgage related “suspicious activity reports” filed by banks with federal investigators. “Taxpayers, investors and future home buyers asked to sacrifice on behalf of today’s subprime ‘victims’ might reasonably ask for a more thorough accounting” (of this fraud activity.
The Journal, however, presents a reasoned argument against the bill on a more pragmatic basis; the Law of Unintended Consequences.
Mortgage debt, the editorial stated, has always been treated differently than other types of debt. The threat that the bank can and will take the house if the payments are not made is designed to encourage lenders to offer lower rates on a less risky type of investment.
The Journal quoted Supreme Court Justice John Paul Stevens’ 1993 opinion in Nobelman v. American Savings Bank. “At first blush it seems somewhat strange that the Bankruptcy Code should provide less protection to an individual’s interest in retaining possession of his or her home than of other assets. The anomaly is, however, explained by the legislative history indicating that favorable treatment of residential mortgagees was intended to encourage the flow of capital into the home lending market.”
Giving credit for the current high levels of homeownership to the success of this policy, the Journal raised the specter that mortgage interest rates may soon reflect the greater risk to lenders by equaling credit card or signature loan rates.
This could very well be the case. But I feel that this is all just BS and scare tactics.
The American people run the country and our economy, not lenders and banks. If Americans cannot purchase a home because the rates are too high, then they will rent and lenders will suffer and go out of business. We will all have a rood over our heads and we can most certainly live without them, but they cannot live without us and it has never been more evident in our society then now.
These lenders will certainly find a way to lend money to borrowers in ANY market, as they have done throughout history. So, please do not buy into any of this BS and rhetoric. Without us, they are nothing and they will perish.
What if Americans united against these lending institutions and chose to rent for the next few years? What would happen then? What if strapped borrowers in exploding adjustable rate mortgages decided to go on payment strike? What would happen then? Would it give the power back to the people? Would it force our government to place a moratorium on foreclosures?
My guess is that if the American homeowner did any of the above on a massive scale, that it would force change and force it FAST!
{ 4 trackbacks }
{ 23 comments… read them below or add one }
Moe, did you miss the part where it is stated secondary market is NOT buying FHASecure pools as well as the fact plenty of people including me predicted “rates jumped” due to fear that government is going to meddle with existing contracts. If it turns to be true there will be NO secondary money at low rates for any of work outs or refinances, you can bet on that. And believe me US needs foreign cash flows otherwise hello double digits interest rates. And you know that interest rates inversely correlated with home prices. End result: all of those who made stupid decisions will end up with in foreclosure anyway. Just like I said: we will end up in the same end state with much worse market environment.
Where did President Bush get his information when he said on tv FHA Secure had done 35,000 refinances since the program was announced.
Yes, Alan, I wrote it, so I didn’t miss it.
I correct you Alan, all those that MADE stupid loans will eat their loans when this is all said and done.
No matter what you wish for, the only way for this mess to be cleaned up is not a natural cleansing as you wish for, but the purging of banks and lenders from running the “mortgage” show and the power will be put back in the peoples hands.
If we do it your way Alan, our country and quite possibly the world will go into a massive recession and there will be no markets, chaos.
This market is to out of control and we need to get these jokers that contributed to the mess, out of the clean up.
Evelyn, that was for “ALL” FHA refinances. Remember he is just a mouth piece from a prepared speech. I have watched all his televised appearances lately and he needs to get more of a grip on what’s happening with homeowners and these mortgages because he doesn’t seem to have a clue.
This is the biggest issue on our shores, by far.
Doing your way is going end up just the same. Do you really believe that mortgage will continue to be available ? Remember if secondary market doesn’t buy MBS those substandard borrowers present and future can bid farewell to homeownership. They were able to get into homes only because MBS were sold to investors at the time and as you noted when loan is unrolled the new one must be made and if it can’t be made, then what ? As you can see even govies for those subprime borrowers are not taken up by the market. Who is going to finance that new loan at the single digit rate that’s lower than the current note ?
FHA, yet another infringement on our rights by the gov’t. Add it to the ever-growing list of violations:
They violate the 1st Amendment by opening mail, caging demonstrators and banning books like “America Deceived” from Amazon.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing.
They violate the entire Constitution by starting 2 illegal wars based on lies and on behalf of a foriegn gov’t.
Support Dr. Ron Paul and save this great country.
Last link (unless Google Books caves to the gov’t and drops the title):
http://www.iuniverse.com/bookstore/book_detail.asp?&isbn=0-595-38523-0
Did anyone in goverrnment actually think that FHA Secure would assist 80,000 homeowners facing foreclosure? Does anyone really believe that 80,000 homeowners involved in this mess will actually qualify for FHA Secure financing even though everything can be included except for the foreclosure notice.
Sub prime borrowers either werre mislead by mortgage brokers who falsified income information or the borrower just lied about earnings.
I have a great idea let’s verify with a 4506 form. How many borrowers can actually provide paystubs and W-2 forms to qualify for such a loan?
answer 266 in for months.
I’m sorry but as a Mortgage Banker, I knew that this program would fail to be the fix that the government thought it would be. But when you are pulling at strings trying to find a solution especially in a political year, politicians will try almost anything.
Next to fail – Rate freeze
And let us not forget to give both Senate and Congress our heart felt thanks for their excellent work on the new FHA guidelines. This will only add to the horror stories already. But hey why not do what the NAR has requested. Raise FHA linits. So screw the consumer and taxpayer.
just another bailout.
I have been an FHA originator for 25 years and I can tell you that the FHASecure is a joke. In order to qualify, the borrower must be diliquent on his mortgage, but all of his other credit must be paid on time. Who in their right mind will pay their Sears loan for a refrigerator on time and go dilinquent on their mortgage? What are they going to do, put the ‘frig in their car after the foreclosure? Common sense tells us that the credit cards will go bad before the mortgage. I am surprised to find there are 266 people in this country that fit the requirements of this program.
Then why the hell is our government coming out with these programs that do nothing? Is it to buy time for lenders? Are they trying to clean this crap up behind closed doors another way?
Why did FHA go out of style during the subprime hey day?
Alan, maybe we need this to happen, but we need something to be done to stabalize the markets and our housing crisis. Hence, why I started this blog, LOAN MODIFICATIONS. They need to be done and if after that, a borrower defaults, then, they suffer their fate.
It is just senseless to let foreclosures to continue at the pace they are.
On December 3, 2007 HUD published the following news release. You can even check on their website at http://www.hud.gov/news/
“WASHINGTON – In response to the Bush Administration’s plan to help families avoid foreclosure, tens of thousands of homeowners are refinancing their exotic subprime loans with HUD’s new government-backed mortgage product. HUD Secretary Alphonso Jackson today announced that more than 33,000 borrowers have already refinanced their subprime home loans with FHASecure, a government-insured foreclosure avoidance initiative created in September. An additional 20,000 are in the pipeline for approval this month, bringing the total to more than 53,000 in a four month period.”
I don’t know where you guys are getting you information. FHASecure has helped 33,000. Unless, of course, you are claiming that HUD is flat out lying about this. In which case, Alphonso Jackson has committed suicide. Do you really believe that?
If you understand that most people make their monthly mortgage payments, it is not hard to understand that there are many people that qualify. It is just a way for them to get a fixed rate despite their credit score.
In addition to being a Mortgage Broker, I am an instructor for a well respected Real Estate and Mortgage Training School in New York. I train Real Estate Agents and Brokers as well as Loan Officers and Processors. It seems that many people don’t know enough about FHA insured loans. If you did, maybe it would make more sense to you. The greatest limitation on all FHA programs are the mortgage limits. Because of that, homeowners of higher priced homes (loan limit is $362,760 for SFR) will not be able to take advantage.
That’s great Ben. So, you believe that FHA has refinanced 33,000 borrowers in 4 months? Well, actually FHA is saying that. Wow. Yes, they aparantly do not know what’s going on or made a typo.
There is no way in hell that they have processed and closed 33,000 FHA Secure loans in 4 months!
I have attempted to refinance approximately 15 customers off their current subprime loans to FHA or FHA secure. The problems are numerous – judgements which cannot be paid, defaults on student loans, income that cannot be counted, late payments before and after the reset and paticularly disturbing for me is the inability to do cash outs on FHA loans in Texas. If we want FHA Secure to work, then they should probably add .25% or .5% in rate (or maybe an additional .25% in MI) and allow judgements under $10,000, no more than 2×30 day lates in the past 12 months regardless if the loan has reset or not (if you are able to reduce payment by 25% why not?), waive the federal debt delinquency requirement and allow cash-outs in Texas – and charge the people who need these loans a higher rate to pay for the extra risk – is that so hard to see? Then we could do some decent numbers. So far, from what I have seen, these borrowers could not have gotten an FHA to begin with for all the reasons listed above – all the reasons why subprime made sense to begin with. We need a responsible, national subprime program and FHA is the mechanism. Unfortunately, we do not have the collective insight, IQ or willingness in current leadership on EITHER or BOTH sides of the isle to bring about much needed reform and new programs. For what our elected officials are paid, you would think a few of them could figure this out.
Andrew,
Does it surprise you ? These borrowers should have never been given loans to begin with, no one would have lent them money even FHA that caters to bottom part of credit worthy pool. These borrowers getting loans is the reason homeownership rate grew from 63% to all time high 69% in last few years. It’s about to go back to long term average of 60% and those 9% will lose homes because they simply never had capacity to be homeowners. No one would have lent them money and if anyone did they wouldn’t have been able to repay loans. As it was posted on CalculatedRisk few weeks back absolute majority of foreclosures on ARMs is happening even before rate adjusts while it’s still in fixed period. Last few years was an accident waiting to happen. Well, it happened.
Thanks for he input from the FHA industry vets for your candid comments.
These foreclosures you speak of are from fraud Alan. Majority, broker or loan officer or lender or everyone. Yes, some homeowners definitley played the fraud game. We all know this.
Majority as you say, are actually speculators, investors and fraudsters.
Now, there are a tremendous amount of foreclosures, so there are people that may be in the minority, 1,000,000 or so people, that should have their loans modified.
Can you agree to that Alan?
The following testimony was submitted by Paul Gallagher, Economics Co-Editor, EIR News Service and Executive Intelligence Review to the Pennsylvania House Government Affairs Committee, November 29, in Harrisburg, PA. :
1. What the United States faces now is not a “housing crisis,” but a dollar crash and a banking crisis, triggered by the meltdown of a hyperinflated mortgage bubble the size of which the world has never seen before, and will never again. The country also faces economic depression if the real economy, the depository banks, the households, are not protected from the collapse of this bubble by actions of government.
HR 418 supports an emergency legislative action which could be called “the first firewall” to protect the people and the real economy, from an unstoppable collapse of vast mountains of mortgage-asset-based debts. As a call from Pennsylvania’s legislature to its elected officials in Congress, HR 418 can be a historically timely action toward saving the United States from very hard economic times and the social chaos of mass home foreclosures.
Look at this mortgage bubble (Chart 1, mortgage originations in the United States): It was called by housing economist Robert Shiller, in testimony to the Joint Economic Committee of Congress, a bubble unlike anything in the history of the United States and world economy; and its collapse, unprecedented both in terms of its domination of financial investments, and in how far home prices will fall before it’s over.
You see that in a sudden eruption after 2001, some $14 trillion in new mortgage debt was issued in a few years in the United States–leaving aside that the process was quickly repeated in the UK, Ireland, Spain, the Scandinavian countries.
On top of this, some $7 trillion in mortgage-backed securities were issued in the same few years–a mortgage debt bubble, thus, of over $20 trillion blown up in such a short time, vacuuming in investment capital from all over the world–all this driving a stupendous escalation of the price of homes, which doubled after inflation since 2000.
But millions of homeowners gave up equity, in favor of more debt, even as the price bubble inflated. Mortgage-backed debts have been used as “assets” to generate much more leveraged debts by hedge funds, private equity funds, money-center banks.
Outright mortgage frauds have proliferated, and one of the most dramatic frauds hit nearly 1,000 households in one Pennsylvania County.
We have also seen, this month, a series of Federal court decisions in Ohio’s Eastern District which are potentially a broad shock to mortgage-backed securities. Three judges have stopped foreclosures because the investment trusts foreclosing on the homes could not show they owned the mortgages. The suspicion has been raised in these cases, that the same home mortgage loans may have been used in multiple “pools” of mortgages being made into securities.
This immense bubble of mortgage debt apparently has produced, as of now, a very small but real drop in American homeownership. From the standpoint of the generation of “financial products” by London and Wall Street investment banks and mortgage lenders in this bubble–mortgage products, mortgage-backed securities products, leveraged debt and derivatives products–WHAT WAS BEING SOLD WAS NOT HOMES, BUT MORTGAGES: AS MANY, AS LARGE, AND AS HIGH-INTEREST AS POSSIBLE.
Consumer debt, which was 25% of GDP in 1960 for comparison, has ballooned to well over 95% now.
Look at the dependence of the assets of the U.S. banking system (Chart 2) on mortgage debt–49% as of 2006, 48% as of now, according to figures from the FDIC; and 35% dependent on residential mortgage debt. Now, housing economists such as Dr. Shiller have told the Joint Economic Committee that home prices–we cannot say “home values,” but home prices–are in the process of declining rapidly by perhaps 20%, perhaps more. This is uncharted territory. One study by First American Core Logic found that with just the first 10% drop in median home price, 25% of mortgages originated in 2005, and 39% of those originated in 2006, go “upside-down,” wherein their mortgage debt is greater than the sale price of their home.
This process drives both mass foreclosures and massive bank losses.
[Chart+3] 2. That foreclosures must be stopped by legislative action, is becoming very clear. Nearly half a million homeowners will have lost their homes to foreclosure actions during 2007 (Chart 3, foreclosure actions).
The prospect in 2008 is much worse: Nearly 2 million adjustable rate mortgages will reset to higher rates and payments (Chart 4, ARM resets);
homeowners’ equity will fall with price declines; the loss of well-paying jobs could accelerate under the impact of the dollar collapse.
[Chart+4] You are meeting here, in part, because no Congressional action has been taken to stop foreclosures. The “great hope” of Fannie Mae and Freddie Mac expanding dramatically to buy up and refinance subprime mortgages, has been proven a delusion: Both are actually shrinking, due to growing mortgage losses, which in Freddie Mac’s case, already threaten its core capital. EIR News Service called this $150 billion expansion of the Government Sponsored Enterprises (GSEs) unworkable, when it was first proposed. And it was the wrong way, the bailout way, to deal with hyperinflated mortgages and mortgage securities.
Other mortgage reform measures which have passed in the U.S. House of Representatives only look to the future, and not to stopping this mass foreclosure wave. Appeals to the mortgage industry or to bankruptcy courts to reform mortgages are not slowing down that wave either, and cannot deal with the national plunge in home prices which is only still gathering momentum. What remains urgent, is for Congress to stop foreclosures by law–by a national mortgage foreclosure holiday during the mortgage/price collapse; a state determination of fair-market rent equivalents to be paid to participating banks by homeowners with problem mortgages; and Federal protection of Federally chartered and state-chartered banks which are suffering rapidly growing losses in the mortgage bubble collapse.
My colleague Richard Freeman will demonstrate how this has been done historically under the American System and the General Welfare principle.
3. Banks are taking and will take great losses no matter whether Congress Acts or not. Outside of the huge losses of the money-center banks in London and New York, the example of National City Bank in Columbus, Ohio, a large regional, Federally chartered bank, shows what is happening–in the third quarter 2007, National City reported nearly $775 million in impaired mortgage assets in three categories; a $160 million loss; and a layoff which has reached 1,500 of its staff.
The Financial Times warned on Nov. 25: “The projected size of this year’s credit shock is now rising rapidly. The U.S. government initially forecast $50 billion losses on subprime securities. However, investment banks now expect $500 billion subprime losses–and additional massive losses in other debt markets, such as credit card loans.” It has been clear that the big money-center banks do not know, or are continuing to hide, their real losses. A well-informed banker in Denmark has estimated to EIR, that the money-center banks’ unrealized losses are actually $2-2.5 trillion.
On Nov. 25 the European Central Bank, which has made a full $1 trillion in weekly liquidity injections into the British and European banks since early August, announced it would step up that pace of cash injections through the end of the year. On Feb. 26, the Federal Reserve announced that it would do the same, to try to bring down interbank lending rates and liquefy securities markets. This attempt is now four months old, and intensifying, not diminishing. Federal Reserve liquidity injections recently through the Fed Funds window have been over $40 billion each week.
Treasury has released, that in August and September there were large, net capital outflows from U.S. securities, totaling $165 billion as Asian banks and investors in particular dumped the dollar. This is shocking, after years of net capital inflows routinely $70-100 billion a month.
The mortgage meltdown and bank crisis have triggered a U.S. dollar crash, destabilizing international monetary and trade relations. Goldman Sachs chief U.S. economist Peter Hatzius has just made a projection that these massive bank losses will cause a drop in banks’ ability to lend, of $2 trillion. For comparison, in 2006 total U.S. bank lending to households and financial and non-financial corporations was about $3.24 trillion, according to the Federal Reserve. Mr. Hatzius called the result, with dramatic understatement, “a substantial recession.”
Already dramatically contracted for months, is interbank lending, the reason for the Fed’s and ECB’s escalating cash injections to the banking system. The failure of a few big banks, could take hundreds of smaller regional and local banks down with them.
4. We should stop the massive bailing out of non-banks, non-depository institutions typified by Countrywide Financial Corp. or by the hedge funds and investment banks securitizing mortgages; stop the attempt to bail out the “value” of these securities.
THE COUNTRYWIDE CASE IS EXEMPLAR. IT RECEIVED A $22.5 BILLION CREDIT LINE FROM 40 BANKS ON AUG. 25, HOURS AFTER AN EARLY MORNING FEDERAL RESERVE INJECTION OF $20 BILLION INTO THE BANKING SYSTEM.
IT LATER RECEIVED AN ADDITIONAL $11 BILLION CREDIT LINE FROM A GROUP OF BANKS. IT HAS BEEN LOANED THE ASTONISHING TOTAL OF $51 BILLON SINCE SEPTEMBER BY THE FEDERAL HOME LOAN BANK–ANOTHER OF THE GSEs ALONG WITH FANNIE AND FREDDIE–PROVOKING SEN. CHARLES SCHUMER OF NEW YORK TO PROTEST ON NOV. 26 THAT:
“COUNTRYWIDE IS TREATING THE FEDERAL HOME LOAN BANK SYSTEM LIKE ITS PERSONAL ATM
WHEN CONGRESS CREATED THESE BANKS, IT NEVER INTENDED FOR THEM TO BE USED TO PROP UP MORTGAGE LENDERS . . . AT A TIME WHEN COUNTRYWIDE’S MORTGAGE PORTFOLIO IS DETERIORATING DRASTICALLY, FHLB’s EXPOSURE TO COUNTRYWIDE POSES AN UNREASONABLE RISK.”
WHAT HAS COUNTRYWIDE DONE WITH ALL OF THAT BAILOUT CREDIT?
SHRUNK IT’S MORTGAGE LENDING BY 40%; SHRUNK ITS EMPLOYEES BY 17,000; AND BOUGHT BACK, EN MASSE, FROM HEDGE FUNDS AND OTHERS, ITS MORTGAGE SECURITIES–IN EFFECT, BAILING OUT THOSE SECURITIES AND THEIR HOLDERS.
The loans to mortgage lending companies through the FHLB alone have totaled over $150 billion since September. I have already noted the trillions injected into the banking system by the Federal Reserve and ECB since August, for similar purposes.
If Congress simply put chartered depository banks, and those only, under protection, as called for in H.R. 418, far smaller amounts of Federal credit would be necessary, for much better purposes of protecting the economy, that in these attempts to bail out the hyperleveraged, speculative instruments based on mortgage-backed securities.
http://larouchepac.com/news/2007/12/02/eir-correspondants-advance-hopes-homeowners-harrisburg-pa.html#Paul%20Gallagher
Testimony submitted by Richard Freeman,
Economics writer, Executive Intelligence Review
The ongoing systemic breakdown of the world financial system, including the $20 trillion U.S. housing bubble of mortgages and Mortgage-Backed Securities (MBS), is contributing to the tsunami-wave of U.S. home foreclosures. People and all their worldly possessions are thrown out on the street. My colleague Paul Gallagher showed in a graph, that in 2007 by year’s end, based on projections of the first eight months of this year, there will have been 2 million American households in one stage or another of foreclosure.
However, EIR projects that America is staring at a catastrophe– that 7 to 10 million households, representing more than 20 million people, will likely permanently lose their homes over the coming few years. Some people are so terrified that they want to deny reality; but it is true.
People have proposed three responses to this crisis.
The first is to do nothing.
The second response is to support a plan that would have the secondary housing market giants, Fannie Mae and Freddie Mac, buy up the radioactive and failing mortgages. This bail-out plan, which in addition to producing a disaster, as my colleague Paul Gallagher has already shown, is also ridiculous: Fannie and Freddie are experiencing melt-down, and are in no position to bail out anyone else.
Foreclosures are not statistics; people live in these homes. We must stop the foreclosures while erecting a firewall that protects the banking system. The only response worth considering is the adoption of Representative Harold James’ House Resolution 418. Pennsylvania would join other state and local legislative bodies to compel the U.S. Congress to adopt immediately the Homeowners and Bank Protection Act. This is the only proposal that would work.
In recent weeks, in direct proportion as HR 418 has gained support and endorsers, questions have been raised and criticism has been hurled at the resolution. Three basic questions stand out, that this presentation will respond to: first, the critics claim that a plan, such as the Homeowners and Bank Protection Act, has never been adopted before in history; second, they claim that it violates the law: and third, they claim that the proposed legislation is a way to bail out banks that are not entitled to be bailed out.
To answer the criticism we look at history,
READ THE REST OF THIS TESTIMONY HERE:
http://larouchepac.com/news/2007/12/02/eir-correspondants-advance-hopes-homeowners-harrisburg-pa.html#Richard%20Freeman
I can agree that there are probably 30-40% of borrowers who are collateral damage of the ponzi scheme. Unfortunately for them: they overpaid. Bankruptcy code needs to be modified per proposal again that I read on CalculatedRisk that would allow principal amount of primary residence mortgage crammed down to something reasonable, mortgage debt in excess of crammed down amount shall be converted to unsecured debt and shall be treated the same way as any other unsecured debt like credit cards. Establish some pay out plan and discharge after few years.
Bankruptcy process is a existing legal instrument that allows debt amounts reduced, it’s been there from the start when lender/investor gave the loan and so risks should have been priced in. Lender/investor will also be able to dispute anything before the judge and they will know they got the best they could.
If Congress comes out with uniform legislation that would stipulate the way cram downs must be calculated (to remove subjectivity of judjes) it’s way better approach than anything like mandatory modifications. After cram down the comps in neighborhood will be lower (cram down amount will be another price point record) and so incoming new buyers won’t have to pay overinflated price. Those who overpaid and went through bankruptcy won’t be able to refi/cash out for a long time. Lets see if they can be weaned from credit needle.
If Buyers should suffer the stigma and ramifications of Bankruptcy, than what should the shiesty LO, mortgage brokers and banks suffer?
Here’s a radical suggestion, as per Lyndon LaRouche:
“Write Off Speculative Debt Obligations”
“The Act states that it would explicitly write off speculative debt obligations. The legislation incorporates the idea that there will be time provided for a “shakeout [that] may take several years,” during which time the valuation of U.S. homes and of mortgages will come down. The understanding is that during this interim, no branch or agency of the U.S. government should be permitted to purchase any of this mortgage paper at currently inflated values.
Rather, worthless pyramided speculative paper should be written off the banks’ books, and these banks should “resume their traditional functions, serving local communities, and facilitating credit for investment in productive industries, agriculture, infrastructure, etc.” Thereby, the banks would have real loan assets on their books, which are of far more real value than a large volume of speculative assets which are disintegrating before one’s very eyes.
Between 1930 and the end of 1932, throughout the USA, 5,100 banks, or one fifth of those that existed at the outset of 1930, failed. On March 4, 1933, President Roosevelt was inaugurated as President. On March 6, Roosevelt closed all of the banks through his executive order of a National Bank Holiday. The Emergency Banking Act legislation was introduced to Congress on March 9, at noon, and was signed by President Roosevelt at 8:37 pm. The whole affair, from start to finish, had taken less than 9 hours, showing that Congress can be spurred to act swiftly, when a good kick is administered. Banks reopened on March 13, and one month later, 76% of U.S. federally-chartered banks were up and operating.
Lyndon LaRouche has called for a bankruptcy reorganization of the thoroughly bankrupt and collapsed banking system. ”
In my mind, this proposal sounds a lot better than a punitive bankruptcy solution that actually punishes homeowners for being unfortunate enough to be preyed upon and swindled.
Ron Paul is calling to repeal the Federal Reserve Act and do away with the IRS. Seems to me this is getting more to the ‘root causes’ of the hideous manipulations of what should be our ‘free markets’. These central bankers have been allowed to control our country and the world for almost 100 years now. When you think about it, doing away with the Fed is really not extreme. What is extreme and radical was that this Act was past in Congress around this time before Christmas 1913, when few members attended. In the new year of 1914, as journalists were making noise about it to the people, WWI was declared (manufactured?) in the nick of time. Nice distraction. These bankers are masters of distraction! Since then our entire world is becoming ‘monopolized’ to serve the selfish interests of a few at the expense of the many. This is the worst kind of tyranny since before 1776! In 1789, it was the ‘Storming of the Bastille’. Perhaps in 2008, it will be the overthrow of the cancerous central bankers and their ‘Federal Reserve Bank’, that is anything but ‘Federal’. We desperately need to clean out our government of these thieves and their agents. I support Ron Paul. He may be the very first ‘real’ leader since General Washington. Someone who is principled and would never betray the Constitution and the American People. But likewise, on the other end we need the American people to uphold our Law in word and deed as well, and forever be vigilant against the \’e2\’80\’98enemies from within\’e2\’80\’99. We live in interesting times. Keep in mind government means ‘to control the mind’, latin, ‘guber mente’.
Anisha, I read your post with interest. You raise a lot of alarming and very true points. As I see it, as long as human beings have the propensity to be dishonest and cruel, we will need government, but then who governs the government?
We’re supposed to have a system of checks and balances here in America, but so much is thrown in as you say to distract from that and thwart it, it hardly ever works.
I do believe there is a movement to create a World Central Bank, and that this what is fueling the undecipherable logic behind the latest crisis in the mortgage industry — but don’t get me started with conspiracy theories. Thanks for the comment — it was refreshingly different.
Our mortgage company will not work with us. They said that our mortgage is too new. 9% interest is far too high for us and the writers’ strike has affected Sergio’s work as a stage tech. He hasn’t had much work since the onset of that strike. It’s impossible to make our mortgage payment of over $4,000. per month. In order to keep this house, we would need a 40 year mortgage and lower interest. Virginia is a senior citizen but Sergio is not. We are not looking forward to moving. We came back in 2006 to CA from living in NJ for seven years. Life has been tough for us so far and we can’t seem to get any help.
As a Realtor and Loan Consultant there is an problem that has not been addressed. There are a tremendous number of undocumented homeowners who are walking away from their mortgages. It is easy for them because they can start over with another identity. There is truely and underground economy but its not talked about in terms of foreclosures. I work homeowners to modify their mortgage to allow them to keep their homes. Alot of them do not have social security numbers but were able to get a loan. I don’t believe the foreclosure mess is an accident because Congress changed bankruptcy laws not allowing judges to restructure loans. The major reason prices are dropping in not just because there is a lack of credit but lenders have been taking 3 or more months to make a decision on a short sale. Lenders eventually take less because the initial higher offers don’t stick around. Just like with anything else, the longer its on the market the more the value drops.